Ethiopia’s first natural gas development project in the Ogaden basin, Somali Regional State, is delayed due to various reasons including complex negotiations with the Djiboutian government on gas pipeline construction to the port of Djibouti.

The Chinese firm Poly-GCL signed petroleum development

agreement with the then Ministry of Mines in November 2013 that would enable the company develop the natural gas reserves in the Ogaden basin and prospect for additional oil and gas deposits. Poly-GCL has been undertaking various petroleum exploration and reserve estimation work in the Calub, Hilala and Genale localities where there is a vast gas reserve. The company has been drilling appraisal gas wells and oil and gas exploration wells in the Ogaden basin, which demonstrated promising results.

Poly-GCL planned to build a gas pipeline all the way from the gas fields to the Port of Djibouti stretching 700kms and a gas treatment plant at the Port that process the gas and export it to China. The gas development project is estimated to cost four billion dollars – a mammoth development project that ranks among the top three infrastructure development projects in Ethiopia along with the Addis Ababa-Djibouti Railway and the Grand Ethiopian Renaissance Dam.

Originally, Poly-GCL planned to start gas production in 2017 which latter was rescheduled for 2018. However, this is not going to be materialized at least until 2020 as the required infrastructure is not yet built. The Reporter learnt that Poly-GCL has not started building neither the pipeline nor the gas treatment plant.

Motuma Mekassa, the Minister of Mines, Petroleum and Natural Gas, told The Reporter that there is a significant amount of proven gas reserve that Poly-GCL intends to develop and export to China. Motuma said that the project is delayed due to the complicated negotiation with the Djiboutian government. “The pipe construction, gas transport and port utilization are all part and parcel of the negotiation. An LNG (Liquid Natural Gas) plant would be built at the Port of Djibouti. The gas would be transported by pipe and it will be liquefied at the LNG plant and would be exported to China by LNG tanker vessels,” Motuma said.

The minister told The Reporter that there is an ongoing negotiation between Poly-GCL and the government of Djibouti. “It is a complex negotiation which took a long time. It has been a bit delayed. Our government is persuading the parties to expedite the negotiation. We hope that it would be finalised soon and an agreement would be signed and the pipeline construction would begin in 2018,” Motuma said.

The business times recently reported that Poly-GCL Group is in final talks with a Singapore yard group called Sembcorp Marine to award a contract to build a floating LNG plant. Poly-GCL Petroleum’s chairman and president, Barton Yu, said the project aimed at tapping the vast reserves of Ethiopia’s Ogaden basin will be developed across three phases, scaling up from a start-up capacity of three million tons per annum from early 2020 to 10 million tons per annum once the full field development kicks in.

The contract value to design and build the floating LNG is estimated at one billion dollars. Poly-GCL aims to start production at its Ogaden basin project by early 2020.

Yu said that a final investment decision on the project is expected in September or October and construction on the FLNG may begin before the end of 2017. Poly-GCL has also purchased a second-hand LNG carrier.

Poly-GCL is seeking regulatory approval to operate a terminal in China for the purpose of importing gas from Ethiopia but Yu also stressed that the company is concurrently reaching out to gas buyers in Europe, Japan and the larger Asia.

Poly-GCL drilled Calub11 and Hilala5 appraisal wells in 2015 and conducted well testing. Previously, 10 wells were drilled in the Calub gas fields. Out of these eight were made ready for gas production. The Calub gas field is located 1,200km south-east of Addis Ababa. Hilala is 80km further to the east.

Poly-GCL has prepared a gas field development plan based on the reserve estimate. The gas reserves in Calub and Hilala are estimated to be four TCF (trillion cubic feet). Another 0.6 TCF gas reserve was discovered by Petronas, Malaysian oil and gas giant, in Genale locality.

The gas reserves in Calub and Hilala localities is estimated at 118 billion cubic meters (4TCF). The gas reserve was first discovered by an American oil company, Tenneco, in 1972. Crude oil reserve was also discovered in the Hilala block but the reserve was non-commercial. The Russian company, Soviet Petroleum Exploration Expedition (SPEE), confirmed the gas reserves in Calub and Hilala in the 1980s.